I.

AGENCY

Assent + Benefit + Control = A-P relationship 1. Assent by the Principal for the Agent to act 2. On behalf b. Actual Agency: consent or agreement that an agent will act on behalf of the principal and that the principal will control the agent i. Express Actual AuthorityWritten or spoken words y principal to agent creating agent's authority ii. Implied Actual AuthorityConduct of the principal reasonably interpreted by agent causing agent to believe he is acting on the principal's behalf iii. Incidental AuthorityUnless otherwise agreed, authority to conduct a transaction includes the authority to do any act incidental to, usually accompanied by, or reasonably necessary to carry out the initial transaction iv. General AgentSeries of transactions involving a continuity of service v. Special AgentTransaction or series of transactions not involving a continuity of service vi. Vicarious Liability 1. Liability imposed on principal for wrongs committed by agent 2. Independent Contractorsprincipal is not liable for torts but principal sacrifices control over the independent contractor UNLESS independent contractor is engaged in inherently dangerous activity 3. Non-Servant Agentsprincipal subject to contract liability NOT torts outside the scope of non-servant agent's authority 4. Consider the "work-for-hire" doctrine: agents can be acting under different capacities at different times during the agency relationship 5. Consider ALL the circumstances vii. Creditor Liability (Balancing Test)Creditor Exercising control over agent may be liable 1. Avoid Liability a. Insisting on receiving information and reports b. Providing business advice and counseling on discrete matters, not entire business plans c. Recommend consultants 2. Liability Imposed a. Veto Power b. Coercing debtor to put creditor's representative in charge c. Provide other creditors with assurance of debtor's payment c. Apparent Authority: Outward manifestations by a principal to a third party creating reasonable expectation in the third party that the agent is acting on behalf of the principal i. Directwritten or spoken words from principal to third party ii. Indirectconduct of the principal reasonably interpreted causes third party to belief that the principal consents to the agent acting on behalf of principal iii. Power of PositionAbsent notice to the contrary, Where principal puts agent into position of power, third parties dealing with the agent are justified in believing that the agent has such power d. Inherent Agency: Power of an agent to bind the principal, emanating solely from the agency relationship, solely for the protection of persons dealing with agents i. Principal will be liable for all transactions under which the agency relationship was created AND ii. Any Foreseeable transactions

1. Undisclosed principal 2. Partially disclosed principal 3. Disclosed principal e. Agency By Estoppel: Where a party has changed his position based on a reasonable belief that a transaction was entered into on behalf of the principal and the principal intentionally or recklessly caused such belief, knowing that such belief would change the party's position, without notifying the party, the principal will be liable. Last resort method of showing agency relationship f. Fiduciary Duties: Agent owes principal fiduciary duties as a matter of law. Principal will owe agent fiduciary duties as a matter of fact i. G/R: Agency Relationship: the agency relationship is a fiduciary relationship; that is, a relationship or trust and confidence and the expectation of trust that arises from the relationship. ii. G/R: Agents Fiduciary Duty: The agent is a fiduciary with respect to matters within the scope of his agency [Rst (2) 13]. 1. Scope of Agency: the scope of agency is usually determined by contract between the principal and he agent or by the nature of the instructions given by the principal to the agent. The scope of the agents fiduciary duty may be shaped by the terms of the contract, but the fiduciary obligation exist even though the contract is silent as to the duties of the agent or purports to abolish this duty a. Duty: This means the agent is accountable to the principle for any profits arising out of the transactions he is to conduct on the principles behalf [Rst. (2) 388]. b. Breach: The agent breaches his fiduciary duty to the principal if he acts either to benefit himself or someone else other than the principle [Rst. (2) 387]. c. This fiduciary duty prevents the agent from acting: i. adversely to the interest of the principle [Rst. (2) 389]; ii. in a way to assist an adverse party to the principle in connection with the agency [Rst. (2) 391]; iii. in a way that competes with his principal concerning the subject matter of the agency [Rst. (2) 393]. d. The agency must act to preserve and protect property entrusted to his care by the principal, and is liable for its loss if he disposes of the property without authority to do so, or it is lost or destroyed because of his neglect or because he intermingles it with his own property [Rst. (2) 402-404A]. i. The agent may be required to account for his actions for for property of the principal entrusted to him. 2. Caveat: when parties are dealing at arms length, one party usually does have a duty to volunteer information to the other. a. This is NOT the rule, however, if one owes the other a fiduciary duty. G/R: Other Duties of the Agent: in addition to the fiduciary duty, an agent must act with reasonable care in carrying out the agency and must meet at least the standard of competence and skill in the locality for work of the character he is obliged to perform. 1. An unpaid agent may have a lesser duty than one who is paid. G/R: Principals Fiduciary Duty: the principal owes a fiduciary duty to the agent. These duties are different from the agents duties since the basic fiduciary duty only runs from the agent to the principal. 1. The principal must perform its commitments to the agent, act in good faith, cooperate with the agent, and not interfere with or make more difficult the agents performance of his duties. a. Implicit in the arrangement may be an obligation by the principal to give the agent work, the opportunity to earn a reasonable compensation, or an opportunity to find additional work. 2. In addition, if the agent incurs expenses or spends his own funds on behalf of the principal, the principal may have a duty to repay or indemnify the agent [Rst. (2) 432-469].

G/R: Implied at Law: the law of fiduciary duties is implied at and cannot be abolished through contractual agreements. 1. Distinguish this from an employment contract where the duties and relationship are set forth in the contract, because an employer usually does not owe a fiduciary duty to an employ, especially if the employment at will doctrine applies. i. Definition of a fiduciary (Where principal will owe fiduciary duties) 1. Beneficiary reposes trust and confidence in the fiduciary under circumstances such that the fiduciary must act with the highest regard to the interests of the beneficiary ii. Fiduciary duty as a matter of law (Where agency relationship exists, agent owes fiduciary duties) 2. Parties cannot contract around fiduciary duties but can define fiduciary duties 3. Default Rules a. Agent acts solely for the benefit of the principal b. Agent must use standard care and skill c. Agent must disgorge all profits made on behalf of principal d. Disclose outside business opportunity and give principal opportunity to decline first even if no harm to the principal (Automotive) e. Once Principal questions the agent, Agent MUST disclose all relevant information (Bancroft) f. Agent cannot deal with principal as an adverse party without principal's knowledge g. Where principal knowingly deals with an agent as an adverse party, agent must deal fairly with principal and disclose ALL facts that reasonably affect the principal's judgment h. Agent cannot act on behalf of an adverse party in an agency-related transaction without the principal's knowledge i. Where agent acts for two principals, agent must deal fairly with each and disclose all facts that reasonably affect both principals' judgment j. Agent cannot compete with the principal concerning the subject matter of the agency k. Agent cannot act for anyone with conflicting interests of the principal's l. Agent cannot use or communicate confidential information m. After agency relationship is terminated i. Agent has not duty to compete, but has a duty to refrain from disclosing trade secrets or other confidential information ii. Must account to principal all profits realized from confidential information g. Ratification i. Agent enters into transaction outside scope of authority BUT principal wishes to ratify 1. Transaction must have been valid if agent had the authority 2. Principal exists and is legally competent to ratify 3. Transaction was executed or performed on principal's behalf 4. Ratification must be executed the same way as if done rightfully in the first instance AND 5. Principal must have knowledge of all the facts

a. Who is an Agent? Agency: the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act. Elements: (1) consent by the principal and the agent; (2) action by the agent on behalf of the principal; and (3) control by the principal. 1. Assent (P assents to another person that A shall act on Ps behalf) P must manifest his consent to A (written, oral, or implied from conduct) 2. Benefit (on behalf of P)

A must be acting primarily for the benefit of the P rather than for the benefit of the A or some other party 3. Control (subject to Ps control) 1. A must act subject to the Ps control, but the degree of control exercised by the P does not have to be significant. a. A must be subject to the Ps control over the result or ultimate objectives of the P-A relationship. 2. the requisite level of control may be found simply by the fact that the P has specified the task that the A should perform, even if the P has not prescribed the details of how the task should be accomplished. A. Who is an agent? (doty, Cargill) A. Agency or Gratuitous Bailment? (Favors) Gordon v. Doty Facts: D teacher at local high school lends football coach his car to drive players to game at rival high school. P football player is injured while riding to the game in Ds car with coach at the wheel. G/R: An agency relationship is created once a party agrees to act on behalf of a second party subject to the second partys control. Reasoning: The court may have believed that automobile owners were in the best position to insure against this type of loss. By using (abusing?) agency principles to impose liability, the court gives vehicle owners an incentive to obtain insurance that covers themselves as well as other permitted drivers. Note: If one person agrees to do a favor for the other pursuant to the others instructions, it is entirely consistent with an agency relationship particularly because the person doing the favor (viewed as A) is generally doing it for the benefit of the other person (viewed as the P). Wrongly Decided: Here, the person doing the favor (Doty) is characterized as the principal, even though the favor was being done for the benefit of someone else. Agency or Creditor-Debtor Relationship? Gay Jensen Farms v. Cargill, Inc. Facts: The plaintiffs entered into grain contracts with Warren Grain & Seed Co., which was financed and controlled by Cargill, Inc. (D), a separate entity. G/R: agency relationship implied if creditor assumes too much control in debtor-creditor relationship Reasoning: 1) Cargill directed Warren to implement its recommendations and manifested consent to Warrens agency, 2) Warren acted on behalf of Cargill in operations, 3) Cargill interfered w/ Warrens internal affairs, exhibiting control over Warren. the court viewed the financial and customer ties between Cargill and Warren as an indication that Warren lacked an independent business all together. Court seemed to believe that Warren was simply a business being run for Cargills benefit. Conditions attached to Loan (control): When a lender finances a business, it is common for the lender to impose various conditions on how the money can be used and how the business may run its operations. These conditions give the lender a degree of control Section 14O of the Second Restatement: [a] creditor who assumes control of his debtors business for the mutual benefit of himself and his debtor, may become a principal, with liability for the acts and transactions of the debtor in connection with the business. Comment: o Affirmative Control - the power to initiate or direct transactions o Passive Control the power to limit, block, or veto conduct that is initiated by others

the mere exercise of a veto power is typically insufficient to create a principal-agent relationship

Advice to Cargill: exercise more control. If were going to get the bill anyways, might as well run the other company too. Thats how companies get big. They dont back away from the control, they say since wed be liable as Principal, we might as well just run the whole company. Policy: Normally, courts are reluctant to find principal/agent relationships b/c they dont want to inhibit creditor/debtor relationships. Also, corporate law tends to respect formalities & choice of form by individual corporations. The Cargill court attempted to alleviate such concerns by distinguishing the Cargill-Warren relationship from an ordinary bank financing, since Cargill was an active participant in Warrens operations rather than simply a financier. (not the normal lender-creditor relationship) Significance: Going forward, opinions like Cargill would seem to increase the cost of borrowing for debtors. Even if a creditor exercised only negative control over a debtor, Cargill suggests that there is some risk of agency liability being imposed. A creditor who appreciates this risk will presumably refuse to make loans that it otherwise would have made or will charge more for the loans to compensate for the increased risk of liability. Another alternative is that a creditor will significantly decrease the level of control exercised over a debtor in an effort to avoid the risk of agency liability. A decrease in control, however, increases the risk of default to the creditor. Correspondingly, the creditor will presumably charge more for the loan to compensate for this heightened default risk. B. Liability of a Principal in Contract (Mill Street, Fenwick) AUTHORITY to act 1. Rest 144 Principals liability in contract a. A principal is subject to liability upon contracts made by an agent acting w/in his authority if made in proper form and with the understanding that the principal is a party. 2. Actual authority requires manifestation of consent from the principal to the agent. a. Manifestation of consent = created by written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him to so act on the principals account. b. 2 kinds: i. Actual express the agent had the express authority to do something (was told to do it). ii. Actual implied actual authority circumstantially proven, intended by principal. Highly contextual, often depending on prior practices or industry customs. Mill Street Church v. Hogan Facts: Hogan (P) was injured after he was hired by a church employee to paint the inside of the church. Rule: Implied authority is actual authority that the principal intended the agent to possess and includes such powers as are practically necessary to carry out the delegated duties. G/R: A person possesses Implied Authority as an agent to hire another worker where such implied authority is necessary to implement the agents express authority Implied authority is actual authority that is proven circumstantially to indicate that the principal intended to delegate powers to the agent that are necessary for carrying out the agents duties, and one major circumstantial factor is prior work performed by agent for principal. Watteau v. Fenwick Facts: Humble operated Fenwicks (D) tavern under Humbles name and credit and purchased goods from Watteau (P) without Fenwicks (D) express authority.

Rule: When a principal is undisclosed to third parties, the actions taken by an agent in furtherance of the principals usual and ordinary business binds the principal.

C. Liability of a Principal in Tort (Humble Oil, Sun Oil, Bushey, Arguello, Toti Constracting) 1. Servant or Independent Contractor? 2. Liability for Torts of Servants 3. Liability for Torts of ICs G/R P has the right to control the conduct of an A with respect to matters entrusted to the agent. The P can determine what the ultimate goal is, and the A must strive to meet that goal. Servant or Independent Contractor? (degree of control) A master is a principal who employs an agent to perform service in his affairs and who controls or has the right to control the physical conduct of the other in the performance of the service. A servant is an agent so employed by a master. An independent contractor is a person who contracts with another to do something for him but who is not controlled by the other nor subject to the others right to control with respect to his physical conduct in the performance of the undertaking. (results oriented) G/R: if a person is subject to the control of another as to the means used to achieve a particular result, he is a servant. By contrast, if a person is subject to the control of another as to his results only (but not over how to achieve those results), he is an IC. Humble Oil & Refining Co. v. Martin Facts: Martin (P) was injured by a vehicle that rolled away from the service station owned by Humble Oil & Refining Co. (D), but operated by another person under contract. Rule: One who maintains control over a business enterprises operation, even if it entrusts the operation to one acting without meaningful discretion, is liable as a principal for the negligence of those entrusted with his business. Determining whether a master-servant relationship exists is a question of fact that will be satisfied when master exerts a considerable amount of control over the responsibilities of the servant.

Hoover v. Sun Oil Co. Facts: Hoover (P) was injured when his car caught fire while a service station employee was fueling it. Rule: Agency arises if a principal retains the right to control the details of the day-to-day operation of the agents business. Scope of Employment (SoE) ASK: 1) Was conduct of the same general nature as, or incident to, that which the servant was employed to perform? 2) Was the conduct substantially removed from time and space limits? 3) Was conduct motivated at least in part by purpose to serve the master? In the alternative, was this action foreseeable by the principal?

A. Conduct of a servant is within the SoE if it is actuated, at least in part, by a purpose to serve the master. i. Ira S. Bushey & Sons, Inc. v. United States Facts: A drunken sailor employed by the U.S. Coast Guard caused damage to the plaintiffs drydock while returning to the ship from leave. Rule: Respondeat superior imposes liability on an employer for an employees conduct if the employer created the risk that the conduct would occur. ii. The sailors conduct was not so unforeseeable as to make it unfair to hold the govt liable. The ER should be held to expect risks, to the public also, which arise out of and in the course of his employment of labor. It is foreseeable that a drunken sailor might cause damage while crossing a drydock on the way back to his ship.

Statutory Claims A. Just b/c an employee behaves in an unacceptable manner (i.e. against company policy and/or law) does not mean that the conduct is obviously outside the SoE. B. Factors to consider to determine whether an employee is acting w/in SoE: The time, place and purpose of the act Its similarity to acts which the servant authority to perform. Whether the act is commonly performed by servant The extent of departure from normal methods Whether the master would reasonably expect such act would be performed C. Arguello v. Conoco, Inc. Facts: Several Hispanic plaintiffs were treated improperly in stores owned or branded by Conoco, Inc. (D). Rule: A master is not liable for his servants intentional acts if they occurred beyond the servants scope of employment. Time/Place: Employee acted while on duty as an employee Purpose: Employee acted while carrying out her employment duties Although employee departed from normal methods of her duties and her conduct was not expected, it took place while employee was carrying out her normal duties as clerk. No evidence that Conoco would have expected the employee to act otherwise. Liability for Torts of Independent Contractors A. Ordinarily when a person engages an independent contractor (who conducts an independent business by means of his own employees), he is not liable for the negligent acts of the contractor in the performance of the K, but there are exceptions: a. When landowner retains control of the manner & means of the work contracted for b. Where he engages an incompetent contractor c. Where the activity contracted for constitutes a nuisance per se B. Liability imposed upon a landowner who engages an independent contractor to do work which is inherently dangerous (a nuisance per se) a. Inherently dangerous an activity which can be carried on safely only by the exercise of special skill and care, and which involves grave risk of danger to persons or property if negligently performed. b. Ultra-hazardous an activity which necessarily involves a serious risk of harm to the person, land or chattels of other which cannot be eliminated by the exercise of utmost care, and is not a matter of common usage. Liability is absolute where the work is ultra-hazardous. C. Majestic Realty Assoc., Inc. v. Toti Contracting Co.

a. Facts: Parking Authority hires Toti Contracting Co. to demolish a building which was adjacent to Plaintiffs. During the demolition, Toto goofed and caused damage to Plaintiffs property. Evidence showed that it was hazardous work. Authority held liable because the work was inherently dangerous. b. Rule: Ordinarily, if a person engages a contractor, who conducts an independent business by means of his own employees, to do work not itself a nuisance, the person is not liable for the contractors negligent acts in performing the contract. c. An activity is inherently dangerous when it can be carried on safely only by the exercise of special skill and care, and involves grave risk of danger to persons or property if negligently done. d. An activity is ultra-hazardous, when the activity necessarily involves a serious risk of harm to the person, land or chattels of others which cannot be eliminated by the exercise of the utmost care, and is not a matter of common usage. Where damage arises from an ultra-hazardous activity, liability is absolute. Where reasonable minds may differ concerning whether an activity, such as demolition, is inherently dangerous, the question must be left to the discretion of the jury. Does the work to be performed typically constitute a nuisance? If No the person is not liable for the contractors negligent acts. However, this court recognizes that a property owner is under a non-delegable duty to maintain its property in a manner that safeguards innocent third parties from injury or damage. This duty extends beyond those third parties actually on the property owners premises to adjoining landowners, passersby, and others in the general vicinity. C. Fiduciary Duties of an Agent (1) Duties During Agency A. Reading v. Regem (secret profits-duty of loyalty) a. Facts Reading obtained payment for accompanying unlawful contraband past civilian police checkpoints while employed by the British army. b. Duty of loyalty case. c. Rule Servant unjustly enriches himself solely by virtue of his service without his masters approval must turn over all profits to master. a. Servants service creates opportunities for profit outside of his service may keep profits. d. Rest. (3d) of Agency 8.02 An agent has a duty not to acquire a material benefit from a third party in connection with transactions conducted or other actions taken on behalf of the principal or otherwise through the agents use of the agents position. e. Rest. (3d) of Agency 8.05 An agent has a duty (1) not to use property of the principal for the agents own purposes or those of a third party. . . . f. Rule: A servant is accountable to his master for profits he obtains because of his position, if the servant takes advantage of his position and violates his duty of good faith and honesty to make the profit for himself. B. Agent has a fiduciary duty to act solely for the benefit of the principal. An employee violates this duty by failing to disclose all facts relating to his work and by receiving secret profits from it. C. General Auto. Mfg. Co. v. Singer (duty to disclose)(usurping business opportunities) a. Facts: Singer (D), while employed by General Automotive Manufacturing Co. (P), secretly concealed profits earned by accepting personal orders from the plaintiffs customers. b. Rule: An agent owes his principal the duty of good faith and loyalty not to act adversely to his principals business interests in the furtherance of his own.

c. Singer had a duty to exercise good faith by disclosing to Automotive all the facts regarding this matter. i. Failure to disclose transactions liability. ii. Because Singer (agent) had a duty to obey Automotives (principal) instructions, he needed its informed consent. (2) Duties During And After Termination of Agency A. Post-termination competition with a former Principal is permitted, but the former agent is barred from disclosing trade secrets or other confidential information obtained during his employment. B. Soliciting former employers clients (grabbing and leaving) a) Town & Country House & Home Serv., Inc. v. Newbery b) Facts: Newbery (D) and other defendants established a competing housekeeping business using methods and techniques similar to those the plaintiff had developed. c) Rule: A former employee may not solicit his former employers customers if those customers cannot be readily ascertained by means other than knowledge b/c of employment. Where the customer list was secured by years of business effort, advertising, and the expenditure of time and money. d) A former employee may not solicit his former employers customers. a. Where the customer list was secured by years of business effort & advertising, and the expenditure of time & money, constituting a part of the good will of a business. C. General Rules a. While an employee, you cant compete with employer b/c you have a fiduciary duty. b. You cannot terminate the agency at will, however, so once you quire, you no longer owe a fiduciary duty and you can compete a. Knowledge received by employment, reputation, etc. you can take this with you. What you cannot do is walk away with a client list on paper b. Rationale: Otherwise, it would be like slavery either you stay with the same company forever, change careers, or pay royalties to previous employer. i. Exception: information thats confidential like patents. (addressed by contract, nto agency law)